This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

May 12, 2014

Kidnappings by Terrorists Raise Concerns for Nigeria Investors

As a world economic conference convened in Nigeria last week, the government faced a crisis stemming from the kidnapping of hundreds of girls by a terrorist group that thrust the nation’s security issues to the forefront.

Those issues, some say, endanger Nigeria’s position as a leader among emerging economies.

The crisis gained wide attention when it exploded on Twitter and other social media. Facebook users across the globe were posting and reposting images bearing the caption “Bring Back Our Girls” as the 24th World Economic Forum on Africa convened in Abuja, the Nigerian capital.

Assurances by Nigerian President Goodluck Ebele Jonathan that the summit – which brought together a thousand leaders from politics, business and civil society including Chinese premier Li Keqiang and 11 African heads of state – would go off without a hitch could not have been enough to banish thoughts of the kidnapping of more than 250 Nigerian school girls by the extremist group Boko Haram.

Boko Haram has been around for more than a decade and is responsible for scores of deaths in Nigeria. Yet during that time, Nigeria has become one of the most important countries in Africa and in the emerging market world. It’s been ranked the premier destination for foreign direct investment in Africa and its stock market has been growing.

Even if Boko Haram has been but a nagging thought in the back of investors’ minds, the kidnappings have sounded an alarm for Nigeria, not just because of the episode itself, but also because, as some allege, the lack of a proper response from Nigeria’s government.

“The abductions are a slap in the face of Nigerian security and have escalated the Boko Haram issue to a global audience,” said Daniel Broby, chief executive at Gemfonds, a specialist investor in emerging economies.

The kidnappings aren’t the only violence haunting the nation. They occurred a day after Boko Haram slaughtered 200 Nigerians. Subsequently, the group reportedly kidnapped several more girls after raiding a village in the northeastern Nigerian state of Borno, its stronghold. At the same time, the world was watching a terrifying online video of Boko Haram’s leader, Abubakar Shekau, threatening to sell the girls into slavery.

All this has led some to question the image that some have of Nigeria and its economy.

Nigerian novelist and political commentator Okey Ndibe said the kidnappings should highlight the dangers in the “real” Nigiera – issues that he said have been ongoing but have not been paid the attention they deserve.

The liberalization of the Nigerian economy brought much investment to the country, Ndibe says, and has allowed for the development of a number of industries. And yet some things remain unchanged and, if anything, the sharp divides between haves and have-nots have escalated, perhaps soon reaching a point where they will no longer be tenable.

Boko Haram is extremely dangerous and kills indiscriminately, but Ndibe said the Nigerian government hasn’t taken Boko Haram seriously enough.

“When we’re seeing killings being conducted in the name of God, when there’s a ‘divine decree’ to kill infidels, you know that it’s not going to go away,” Ndibe said.

Considering rampant corruption, staggering wealth gaps and the appeal of Boko Haram’s message preaching the decadence of Western education and values to large numbers of Nigerians in the north, “the Nigerian economy cannot keep developing as it has been,” Ndibe said.

What Nigeria does have (oil aside), however, is a gold mine of human capital.

“Nigeria is a country of prodigious talent and its strength lies in the quantity and quality of human talent,” Ndibe said. “To much of the outside world, Nigeria looks good because it has oil, but it sorely lacks the right kind of leadership to bring it forward.”

Nigeria is a huge, rapidly growing economy with a powerful demographic tailwind, said Ryan Hoover, an investment analyst at Africa Capital Group who also maintains the website www.investinginafrica.net.

In addition to its oil and gas wealth, it has loads of talent both at home and in the diaspora.

Nevertheless, “the emergence of Boko Haram highlights the country's deep cultural divide and the difficulty the government has in creating an enabling environment for its young population,” Hoover said. “The level of corruption is also a big concern, a risk brought to the fore recently with the sacking of [Nigerian central bank governor] Lamido Sanusi.”